On December 27, 2016, Judge Arthur J. Tarnow of the United States District Court for the Eastern District of Michigan dismissed a putative class action against Esperion Therapeutics, Inc. (“Esperion” or the “Company”), a pharmaceutical company, and its chief executive officer.  Dougherty v. Esperion Therapeutics, Inc., No. 16 Civ. 10089 (E.D. Mich. Dec. 27, 2016).  Plaintiffs, purchasers of Esperion common stock, alleged that defendants made false statements regarding the U.S. Food and Drug Administration’s (“FDA”) approval process for a new drug in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.  The Court held, among other things, that plaintiffs failed to allege facts giving rise to a strong inference of scienter, and, in particular, that “[t]he inquiry is inherently comparative” in that it considers whether the inference of scienter is as strong or stronger than the opposing inference of non-culpability.  The Court also held that forward-looking statements about the approval process were protected under the PSLRA safe harbor.  The decision, one of many recent decisions involving statements about drug approvals, highlights the case-specific nature of the analysis and that specific disclosures about regulatory approval risks can provide a meaningful defense in securities cases.  

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On December 13, 2016, the United States Court of Appeals for the Tenth Circuit affirmed the dismissal of a securities fraud action against the manager-managed limited liability company and individual managers and officers of fast-food chain Quiznos.  Avenue Capital Management II, L.P., et al. v. Schaden et al., No. 15-1389, 2016 WL 7210052 (10th Cir. Dec. 13, 2016).  Plaintiffs, a pair of private equity firms, alleged Quiznos executives violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Securities and Exchange Commission Rule 10b-5 by fraudulently misrepresenting to plaintiffs the financial condition of Quiznos in a 2012 restructuring deal in which plaintiffs obtained an 80% equity interest in the company.  The Tenth Circuit affirmed that because plaintiffs collectively controlled the profitability of their investments, the underlying equity purchase did not constitute an “investment contract” and was thus not subject to the Exchange Act.

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On December 6, 2016, FireEye, Inc. (“FireEye”), a cybersecurity company, filed a petition for writ of certiorari with the United States Supreme Court concerning the scope of state court jurisdiction over “covered class actions” under the Securities Act of 1933, as amended by the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”).  Petition for Writ of Certiorari, FireEye, Inc. v. Sup. Ct. of Cal. (U.S. Dec. 6, 2016).  

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On December 5, 2016, Judge Susan Illston of the United States District Court for the Northern District of California dismissed a securities class action against Hortonworks, Inc. (“Hortonworks”) and certain of its officers, with leave to amend.  Monachelli v. Hortonworks, 3:16‑cv‑00980-SI (N.D.Cal. Dec. 5, 2016).  Plaintiffs alleged that Hortonworks violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) through a series of misleading statements regarding the sufficiency of available capital that were made shortly before the company raised funds through a secondary equity offering.  The Court dismissed plaintiffs’ claims for several reasons, including because some of the alleged misstatements were forward-looking statements that qualified for protection under the safe harbor provisions of the Private Securities Litigation Reform Act (“PSLRA”).    

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On November 28, 2016, in In re ARIAD Pharm., Inc. Sec. Litig., —F.3d—, 2016 WL 6933788 (1st Cir. 2016), the United States Court of Appeals for the First Circuit affirmed the dismissal of securities class action claims brought against ARIAD Pharmaceuticals, Inc. (“ARIAD”) and certain individuals on the bases that (a) for all but one of the claims brought under the Securities Exchange Act of 1934, plaintiffs had failed to plead that the defendants had sufficient contemporaneous knowledge of facts underlying the alleged misrepresentations to establish a strong inference of scienter and (b) plaintiffs had failed to allege specific facts that plausibly suggested that their open-market share purchases could be “traced” to an allegedly misleading Registration Statement and, therefore, plaintiffs had not alleged a necessary element of their claims under the Securities Act of 1933.  The unanimous opinion was authored by Chief Judge Howard and joined by retired U.S. Supreme Court Justice Souter.  

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On November 10, 2016, Judge Lewis A. Kaplan of the United States District Court for the Southern District of New York granted in part and denied in part the motion to dismiss filed by defendants MetLife, Inc. (“MetLife”), certain of its officers and directors, and the underwriters of certain MetLife offerings.  City of Westland Police & Fire Ret. Sys. v. MetLife, Inc., No. 12-cv-0256 (LAK) (S.D.N.Y. Nov. 10, 2016).  Plaintiff alleged that MetLife misled investors regarding its financial performance because certain loss reserves underlying its financial statements failed to take into consideration policy holders who had died but had not filed claims yet.  The Court dismissed plaintiff’s claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) because plaintiff failed to plead that defendants acted with scienter, but the Court ruled that plaintiff had adequately alleged a material omission and permitted plaintiff’s claims under Sections 11, 12, and 15 of the Securities Act of 1933 (“Securities Act”) to proceed.  

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On November 7, 2016, Judge Lewis Kaplan of the United States District Court for the Southern District of New York dismissed a putative securities class action against a helicopter operating company, CHC Group Ltd. (“CHC”), and individual and underwriter defendants who participated in CHC’s initial public offering.  Rudman v. CHC Grp. Ltd., — F. Supp. 3d —, 2016 WL 6583788 (S.D.N.Y. 2016).  Plaintiffs had sued under Sections 11 and 12(a)(2) of the Securities Act of 1933 (the “Securities Act”), alleging that CHC’s IPO registration statement omitted material facts because it had not disclosed that one of CHC’s largest customers, Petroleo Brasileiro S.A. (“Petrobras”), had refused to pay fees over a period of time during which certain helicopters were grounded for industry-wide issues.  When that particular disclosure was eventually made, CHC’s stock price dropped $0.99 per share.  Nevertheless, concluding that the registration statement disclosed sufficient information to effectively put investors on notice of the Petrobras issues, and that any omitted information regarding the dispute was immaterial or puffery as a matter of law, the Court held that plaintiffs’ claims were untimely under any interpretation of the requirements of inquiry notice, and, separately, that the complaint failed to state a claim that there was any actionable omission under the Securities Act, including pursuant to any duties under Items 101, 303, and 503 of SEC Regulation S-K, Item 11A of SEC Form S-1, and SEC Regulation C.  The Court thus dismissed all claims with prejudice except as to CHC, the claims against which were subject to an automatic stay under Chapter 11 of the Bankruptcy Code.

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On November 3, 2016, the United States Court of Appeals for the Second Circuit affirmed the dismissal of a “short-swing” trading suit brought against the lead underwriters in connection with Facebook, Inc.’s initial public offering (“IPO”).  In re: Facebook Inc., IPO Sec., No. 14-3800 (2nd Cir. Nov. 3, 2016).  The Second Circuit held that standard lock-up agreements in an IPO between lead underwriters and pre-IPO shareholders are not alone sufficient to render those parties a “group” under Section 13(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), and therefore those parties were not subject to disgorgement pursuant to Section 16(b) of the Exchange Act.  Plaintiff had sought to hold the defendants liable under Section 16(b) for disgorgement of short-swing profits received in connection with their sales and purchases of shares in Facebook’s IPO. 

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On October 18, 2016, Judge Christina A. Snyder of the United States District Court for the Central District of California dismissed a putative securities class action brought against defendant SouFun Holdings Ltd.“ —a Chinese online real estate business—and certain of its officers Maresca v. SouFun Holdings Ltd., No. 15 Civ. 8508 (C.D. Cal. Oct. 18, 2016).  Plaintiffs alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making materially misleading statements and omissions regarding the scale and success of SouFun’s new rental brokerage business.  The Court dismissed plaintiffs’ claims, concluding that plaintiffs failed to adequately plead materiality or scienter because (i) the brokerage activity at issue was not a significant portion of the company’s overall business and (ii) plaintiffs failed to plead facts from which to infer that senior officers in the company knew about the allegedly fraudulent transactions.   

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On October 26, 2016, the United States Court of Appeals for the Ninth Circuit reversed a district court’s dismissal of a putative securities class action against Arena Pharmaceuticals (“Arena” or the “Company”) where the district court ruled that plaintiffs failed to adequately plead scienter.  Schueneman v. Arena Pharmaceuticals, Inc., No. 14-55633, -- F.3d ---- (9th Cir. Oct. 26, 2016).  This reversal sheds light on how courts sometimes evaluate scienter when an issuer comes under “an affirmative duty to disclose” adverse information because it has disclosed positive information, and the disclosure of the adverse information is found to be necessary to make the disclosures that have been made not misleading.  

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On October 13, 2016, Judge Susan Nelson of the United States District Court for the District of Minnesota dismissed a putative class action against RBC Capital Markets (a broker-dealer subsidiary of non-party Royal Bank of Canada (“RBC”)) which alleged that RBC Capital had violated the Minnesota Securities Act and state common law in connection with its sale of reverse convertible notes (“RCNs”) to plaintiffs.  Luis v. RBC Capital Mkts., LLC, No. 16-CV-00175-SRN-JSM, 2016 WL 6022909 (D. Minn. Oct. 13, 2016).  The Court held that the action was precluded under the Securities Litigation Uniform Standards Act (“SLUSA”), finding that the RCNs were “covered securities” under SLUSA even though they were not traded on an exchange.  The case is significant as apparently the first federal decision to consider whether a security is “covered” under SLUSA on the basis that it is “a security of the same issuer that is equal in seniority” to another security of the issuer that is listed on a national exchange.  15 U.S.C. § 77r(b)(1)(C). 

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On October 18, 2016, Judge Sam Sparks of the United States District Court for the Western District of Texas dismissed without prejudice a putative class action against EZCorp, Incorporated (“EZCorp”) for failure to adequately plead that defendants had acted with fraudulent intent.  Wu Winfred Huang v. EZCorp, Inc., 15-CA-00608-SS, 2016 WL 6092717 (W.D. Tex. Oct. 18, 2016).  Plaintiffs claimed that EZCorp and its CEO knew or recklessly disregarded the possibility that EZCorp’s reported financial results were materially false and misleading when made.  The Court’s rejection of plaintiffs’ confidential witness allegations is an example of the rigor with which such allegations often are analyzed.

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On October 11, 2016, Vivendi, S.A. moved for panel rehearing and rehearing en banc before the United States Court of Appeals for the Second Circuit following its September 27, 2016, decision affirming a jury verdict and judgment for shareholder plaintiffs in a securities class action suit.  Petition for Rehearing En Banc, In re Vivendi, S.A. Sec. Litig., No. 15-180 (2d Cir. filed Oct. 11, 2016); Second Circuit Affirms Judgment Following Rare Jury Trial In Securities Class Action, Shearman & Sterling LLP Need-To-Know Litigation Weekly (Oct. 3, 2016).

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On October 7, 2016, Judge Anthony J. Battaglia of the United States District Court for the Southern District of California dismissed a putative class action against Celladon Corporation and two of its executives.  Tadros v. Celladon Corporation et al., No. 15-cv-01458 (S.D. Cal. Oct. 7, 2016).  The Court held that plaintiff failed to meet the heightened pleading requirements under the Private Securities Litigation Reform Act of 1995 (“PSLRA”) in alleging a material misrepresentation or omission and scienter in support of its securities fraud claims under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Securities and Exchange Commission Rule 10b-5.  Plaintiff alleged that Celladon and its executives intentionally misled investors through false or misleading statements regarding the success of early clinical trials of Mydicar, the company’s prospective cardiovascular drug.  According to plaintiff, Celladon’s stock price declined by 80% after announcements by the company in April 2015 that Mydicar failed to meet its goals in the second phase of the trial.  Plaintiff brought this action in July 2015.

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On September 30, 2016, Judge Richard J. Sullivan of the United States District Court for the Southern District of New York dismissed with prejudice a putative securities class action brought against MDC Partners, Inc. (“MDC”)—an advertising agency holding company—and several of its current and former officers and directors.  N. Collier Fire & Rescue Dist. Firefighter Pension Plan v. MDC Partners, Inc., No. 15 Civ. 6034 (S.D.N.Y. Sept. 30, 2016).  Plaintiffs claimed that defendants violated Section 10(b) of the Securities Exchange Actmisstating the amount of compensation paid to MDC’s founder and former CEO. The Court held that the alleged misrepresentations regarding the CEO’s compensation were not qualitatively material and dismissed the claims.   

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​On October 3, 2016, the Supreme Court invited the Acting Solicitor General to file a brief expressing the views of the United States in Cyan, Inc. v. Beaver County Employees Retirement Fund (“Cyan”), a case in which the Supreme Court is considering whether, under Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), a state court lacks subject matter jurisdiction over covered class actions that allege claims only under the Securities Act of 1933 (“Securities Act”).  There is no obligation on the part of the Solicitor General to respond or a formal deadline for it to do so, but the invitation by the Supreme Court could be read to suggest an increased likelihood that the Supreme Court will hear the case.

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On September 27, 2016, the U.S. Court of Appeals for the Second Circuit affirmed the judgment of the Southern District of New York, after a bench trial, finding that Vivendi Universal, S.A. (“Vivendi”) rebutted the fraud-on-the-market presumption of reliance, thereby defeating a non-class, individual group of plaintiffs’ claims under Section 10(b) of the Securities Exchange Act of 1934.  GAMCO Inv’rs, Inc. v. Vivendi Universal, S.A., —F.3d—, 2016 WL 5389281 (2d Cir. Sept. 27, 2016).  The Court affirmed the district court’s determination that plaintiffs—a number of “value funds” controlled by GAMCO Investors, Inc. (“GAMCO”)—did not rely on Vivendi’s market price, and would have purchased the securities even had they known of Vivendi’s alleged misstatements respecting its liquidity risk.  While acknowledging that it would seem unlikely that an investor, “aware of fraud,” would purchase a security, the Court repeatedly emphasized that sufficient evidence in the trial record supported the district court’s findings.

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On September 27, 2016, the U.S. Court of Appeals for the Second Circuit affirmed the judgment for shareholder plaintiffs in a securities class action suit against Vivendi Universal, S.A. (“Vivendi”), following a lengthy jury trial, which found Vivendi liable for securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934.  In re Vivendi, S.A. Securities Litigation, No. 15-180-cv(L), 15-208-cv (XAP), 2016 WL 5389288 (2d Cir. Sept. 27, 2016).  Plaintiffs were a class of investors who purchased Vivendi common stock between 2000 and 2002.  In affirming, the Court found sufficient evidence in the record to support the jury’s conclusion that Vivendi materially misstated its liquidity risk in a manner that either inflated or maintained Vivendi’s stock price, and that the revelation of the truth about Vivendi’s liquidity risk caused a drop in Vivendi’s share price.  The case is significant for a number of reasons, including the affirmance of a verdict arising out of a rare securities class action trial, and its analysis of loss causation and the controversial “price maintenance” theory of loss causation.

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On September 20, 2016, Judge Susan O. Hickey of the United States District Court for the Western District of Arkansas certified a class of investors in an action brought against Wal-Mart Stores Inc. for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5.  City of Pontiac General Employees’ Retirement System v. Wal-Mart Stores, Inc. et al., No. 5:12-cv-05162 (W.D. Ark. Sept. 20, 2016).  The Court held that the proposed class met the numerosity, commonality, typicality, and adequacy of representation requirements under Rule 23 of the Federal Rules of Civil Procedures (“Rule 23”), and named the City of Pontiac General Employees’ Retirement System as class representative.  

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On September 2, 2016, Chief Judge Leonard P. Stark of the U.S. District Court for the District of Delaware denied a motion to remand a putative class action brought under the Securities Act of 1933 (the “Securities Act”) to state court.  Iron Workers District Counsel of New England Pension Fund v. MoneyGram Int’l Inc.

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On September 7, 2016, the Court of Appeals for the 11^th Circuit affirmed the Southern District of Florida’s dismissal of shareholder securities fraud claims against The ADT Corporation (“ADT”).  IBEW Local 595 Pension and Money Purchase Pension Plans, et al v. The ADT Corporation et al, No. 15-13595, 2016 WL 4660814 (11th Cir. Sept. 7, 2016).  Plaintiffs claimed that ADT misrepresented and failed to disclose that its board’s motivation for approving a leveraged repurchase of company stock was to protect itself from threats of replacement by an activist hedge fund (the “Fund”) and that ADT and the Fund engaged in deceptive conduct in executing the repurchase plan, in violation of Section 10(b) of the Securities Exchange Act of 1934.  The Court held that ADT was not required to disclose its motives for the repurchase and the defendants had not engaged in manipulative conduct.

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On September 2, 2016, Judge William Orrick of the Northern District of California dismissed with prejudice a putative class action against Cellular Biomedicine Group, Inc. (“CBMG”) alleging securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934.  Bonanno v. Cellular Biomedicine Group, Inc., No. 15-CV-01795-WHO, 2016 WL 4585753 (N.D. Cal. Sept. 2, 2016).  The Court held that plaintiffs failed to plead with particularity that a blog post compiling publicly available information about CBMG’s efforts to promote its stock was a corrective disclosure causing CBMG’s share price to drop, even in light of the allegation that the information was far-flung or effectively “hidden” or impossible for a lay person to compile. 

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On August 24, 2016, a three-judge panel of the United States Court of Appeals for the Second Circuit affirmed the dismissal of claims brought by putative class members under Section 10(b) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5 against defendants BlackBerry Ltd. and certain of its officers.  Pearlstein, et al. v. BlackBerry, et al., No. 15-3991 (2d Cir. August 24, 2016).  The Court, however, vacated U.S. District Court Judge Thomas P. Griesa’s denial of plaintiffs’ motion for leave to amend, noting that the record was “insufficient” to determine whether leave was proper.  The Court remanded the case for reconsideration of the motion for leave to amend “[b]ecause the district court did not explain its basis for denying leave to amend.”

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On August 22, 2016, the United States Court of Appeals for the Third Circuit affirmed the lower court’s dismissal of a putative securities class action filed against Cooper Tire & Rubber Company (“Cooper”) and two of its officers.  OFI Asset Mgmt. v. Cooper Tire & Rubber Co., No. 15-2664 (3d Cir. Aug. 22, 2016).  The Third Circuit held that plaintiffs’ lengthy allegations amounted to nothing more than claims of fraud-by-hindsight and thus did not meet the requirement that claims of securities fraud be pled with particularity.  

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On August 18, 2016, Judge Kimba Wood of the United States District Court for the Southern District of New York dismissed a putative class action against FXCM Inc., a currency brokerage firm, and its two co-founders, with leave to replead.  Ret. Bd. of the Policemen’s Annuity and Benefit Fund of Chi. v. FXCM Inc., 15-cv-3599 (S.D.N.Y. Aug. 18, 2016).  In dismissing plaintiff’s claims under Sections 10(b) and 20(a) of the Securities Exchange Act (the “Exchange Act”), the Court found that plaintiff failed to plead allegations sufficient to give rise to a strong inference of scienter, holding that the complaint failed to allege either “motive or opportunity” or “strong circumstantial evidence of conscious misbehavior or recklessness.”  Judge Wood’s decision joins the well-established Second Circuit precedent that plaintiff cannot meet the heightened pleading requirement merely by alleging that the defendant was motivated by a common desire to keep the corporation’s profits or by alleging “fraud by hindsight,” and confirmed that the standard for pleading scienter on the basis of recklessness is high.

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On August 11, 2016, the New York Appellate Division, First Department, affirmed the New York Supreme Court’s denial of a motion to dismiss fraud claims asserted against sponsors and underwriters of twenty-three residential mortgage backed securities (“RMBS”).  IKB International, S.A. v. Morgan Stanley, 2016 WL 4217814 (1^st Dep’t Aug. 11, 2016).  Defendants argued that the plaintiff had not adequately alleged its justifiable reliance on any alleged misrepresentation and that, when acting solely as underwriters of certain of the challenged transactions, they made no actionable misrepresentations.  The Court held that the plaintiff had adequately pleaded justifiable reliance on the purported misstatements and that the underwriters’ participation in the RMBS at issue, as pleaded, was sufficient to withstand a motion to dismiss.

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On August 10, 2016, the Eleventh Circuit affirmed the dismissal of a putative class action alleging that various JPMorgan entities and two JPMorgan employees were liable under federal securities laws and civil RICO for frauds perpetrated by Bernie Madoff’s advisory business, Bernie L. Madoff Investment Securities LLC (“BLMIS”).  Dusek v. JPMorgan Chase & Co., —F.3d—, 2016 WL 4205857 (11th Cir. Aug. 10, 2016).  Plaintiffs claimed that the defendants were liable under section 20 of the Securities Exchange Act of 1934 (“Exchange Act”) and the federal civil RICO statute based on their banking relationship with Madoff and their access to BLMIS’s bank accounts.  The Court held that the securities law claim was barred by the Exchange Act’s five-year statute of repose and that the RICO claim was barred by the Private Securities Litigation Reform Act (“PSLRA”).  

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On August 11, 2016, the Second Circuit overruled its own precedent and vacated an order of the United States District Court for the Southern District of New York that had dismissed a petition to vacate an arbitration award because the petition did not, on its face, present a federal question.  Doscher v. Sea Port Grp. Sec., LLC, —F.3d—, 2016 WL 4245427 (2d Cir. Aug. 11, 2016).  The Court held that when considering a petition challenging an arbitration award under section 10 of the Federal Arbitration Act (“FAA”), federal courts may “look through” the petition to the underlying dispute between the parties to determine whether the petition is predicated on an action arising under federal law.

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On August 5, 2016, the U.S. Court of Appeals for the Second Circuit affirmed the dismissal of common law fraud and negligent misrepresentation claims against Citigroup, Inc.  AHW Investment Partnership v. Citigroup, Inc., No. 13-4488 (2d Cir. Aug. 5, 2016).  In a summary order, the Court held that plaintiffs may only recover for actual pecuniary losses sustained as the direct result of fraud, and not for hypothetical value plaintiffs may have realized by selling a stock before its price plummeted.  Plaintiffs had alleged that Citigroup and its officers made numerous fraudulent and negligent misrepresentations about the quality of plaintiffs’ investment in Citigroup between May 2007 and March 2009, causing plaintiffs to hold their Citigroup shares and incur losses of $800 million when the company’s stock price subsequently declined.

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On July 27, 2016, Judge Sarah Illston of the United States District Court for the Northern District of California remanded two putative securities class actions against Fitbit, Inc.—one to the Superior Court of California, San Mateo County and the other to the Superior Court of California, San Francisco County.  See Rivera v. Fitbit, Inc., Case No. 16-cv-2890 (N.D. Cal. July 27, 2016); De Luz v. Fitbit, Inc., Case No. 16-cv-3381 (N.D. Cal. July 27, 2016).  Both matters had been commenced in California Superior Court in April and May of 2016, alleging only claims under the Securities Act of 1933 (the “Securities Act”).  Fitbit removed both actions to federal court, and plaintiffs moved to remand, arguing that the Securities Act prohibits removal of class actions when those actions assert only Securities Act claims.  

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On July 22, 2016, the Court of Appeals for the Eighth Circuit dismissed a shareholder derivative action alleging that directors and executives at Wal-Mart Stores, Inc. (“Wal-Mart”) permitted and then covered up pervasive bribery at its Mexican subsidiary, Wal-Mart de Mexico (“Wal-Mex”).  Cottrell v. Duke, No. 15-1869 (8th Cir. July 22, 2016).  Plaintiffs were seeking to enforce rights belonging to Wal-Mart, but alleged that they were not required to demand that Wal-Mart itself pursue the claims, because the current board of directors was not impartial, meaning that such a demand would have been futile.  Applying Delaware law (the state of Wal-Mart’s incorporation), the Court found plaintiffs’ allegations insufficient to excuse demand as futile, and upheld the dismissal of the action.

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On July 25, 2016, Judge David Carter of the United States District Court for the Central District of California dismissed, without prejudice, a putative class action brought by shareholders of El Pollo Loco Holdings, Inc. (“El Pollo”).  See Turocy v. El Pollo Loco Holdings, Inc. No. SA CV 15-1343-DOC (KESx) (C.D. Cal. July 25, 2016).  Plaintiffs alleged that El Pollo and certain of its executives made false statements concerning expected sales by failing to disclose the negative sales impact of recent changes in menu prices and offerings, in violation of Section 10(b) of the Securities Exchange Act of 1934.  The Court held, however, that plaintiffs had not alleged any actionable false statements, nor pleaded particularized facts creating a sufficiently compelling inference that El Pollo executives made the challenged statements with scienter.

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On July 20, 2016, the U.S. Court of Appeals for the Sixth Circuit revived a putative class action against Federal Home Loan Mortgage Corporation (“Freddie Mac”).  Ohio Public Employees Retirement Sys. v. Federal Home Loan Mortgage Corp., et al., No. 14-4189, 2016 WL 3916011 (6th Cir. Jul. 20, 2016).  In reversing the U.S. District Court for the Northern District of Ohio, the Court found that plaintiff’s allegations regarding loss causation were sufficient to sustain a claim against Freddie Mac under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) for making materially false and misleading statements and omissions concerning its financial health.  

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On July 19, 2016, the U.S. Court of Appeals for the Tenth Circuit upheld the dismissal of a proposed shareholder class action against Deloitte & Touch LLP.  Sanchez et al. v. Crocs, Inc. et al., No. 11-1116 (10th Cir. July 19, 2016).  The Court held that plaintiffs had not “established a strong inference that Deloitte acted recklessly, and consequently, their . . . claim fail[ed].” Plaintiffs had alleged that Crocs, Inc. hid increasingly unsellable inventory totals in 2006 and 2007 before announcing a $70 million inventory write-down in 2008, and that Deloitte knew about or recklessly disregarded “red flags” that should have alerted the auditing firm to the company’s impending financial troubles. 

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On July 14, 2016, the U.S. Court of Appeals for the Second Circuit upheld a decision dismissing claims against Bear Stearns Companies L.L.C. (“Bear Stearns”) for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and common law fraud under New York law.  SRM Global Master Fund Ltd. P’ship v. Bear Stearns Cos. L.L.C., 14-507-cv, 2016 WL 3769735 (2d Cir. Jul. 14, 2016).  The Court held that the class action tolling rule set forth in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), does not apply to 28 U.S.C. § 1658(b)(2), the five-year statute of repose that limits the time in which plaintiffs may bring various securities related claims, including under Section 10(b) of the Exchange Act. 

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On July 15, 2016, the U.S. Court of Appeals for the Second Circuit affirmed the post-verdict decertification of a previously certified class action against Wells Fargo subsidiaries. Mazzei v. Money Store, No. 15-2054 (2nd Cir. July 15, 2016).  The Court held that district courts have the power to decertify a class after a jury verdict and before the entry of final judgment. 

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The tolling rule established by the Supreme Court in American Pipe & Construction Co. v. Utah generally provides that the commencement of a class action in federal court suspends the applicable statute of limitations for all members of the proposed class.

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On July 6, 2016, Judge William H. Pauley III of the United States District Court for the Southern District of New York dismissed with prejudice a federal securities class action filed against Controladora Vuela Compañía de Aviación, S.A.B. de C.V. (“Volaris”), a low-cost airline, and certain other participants in its September 2013 initial public offering (“IPO”).  See Dekalb Cnty. Emps.’ Ret. Sys. v. Controladora Vuela Compania de Aviacion, S.A.B. de C.V., No. 15 Civ. 1337 (S.D.N.Y. July 6, 2016).  In dismissing plaintiffs’ claims under Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”), the Court found that the alleged misstatements were not material because they affected less than 5% of Volaris’s overall revenue and also because the drop in stock price could not be attributed solely to the alleged misstatement but rather a “host of negative market-moving facts.”  Judge Pauley’s decision serves as a reminder that the materiality standard remains a “meaningful pleading obstacle” in Securities Act claims.

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On July 6, 2016, Judge Paul A. Engelmayer of the United States District Court for the Southern District of New York dismissed with prejudice federal securities class claims against the former CEO of an Australian pharmaceutical company, QRx Pharma Ltd. (“QRx”). Gillis v. QRx Pharma Ltd., No. 15 Civ. 4868 (S.D.N.Y. July 6, 2016).  Plaintiffs alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 in connections with statements about the FDA approval process made while one of the company’s drugs was under review.  Judge Engelmayer granted the CEO’s motion to dismiss the claims on the grounds that the alleged misrepresentations about the FDA’s process and the likelihood of approval were inactionable opinion and/or forward-looking statements and because the complaint failed to allege scienter adequately.  This decision signals continuing skepticism of securities claims against pharmaceutical and medical device companies that are brought when developmental products are not successful in trials and/or do not receive regulatory approvals.

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On July 5, 2016, the Tenth Circuit Court of Appeals affirmed the dismissal of a putative securities fraud class action complaint filed by shareholders of airplane part manufacturer Spirit AeroSystems, Inc.  See Anderson et al. v. Spirit AeroSystems Holdings et al., No. 15-3142 (10th Cir. July 5, 2016). Plaintiffs asserted claims under Section 10(b) of the Securities Exchange Act of 1934. In the wake of defendants’ October 2012 announcement of a forward loss of $434.6 million in connection with specified projects, plaintiffs alleged that defendants had knowingly overstated the success of their efforts to cut costs and meet production deadlines for those projects in more than 40 statements in 2011 and 2012. The Court held that plaintiffs’ complaint was properly dismissed because they had failed to allege facts creating an inference of scienter that was cogent and compelling in light of the alternative inference that defendants had merely been overly optimistic.

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On July 1, 2016, Judge William Pauley III of the United States District Court for the Southern District of New York granted in part and denied in part a motion to dismiss a putative class action concerning Virtus Investment Partners, the parent of an investment advisory company that managed and provided advice to mutual funds.  See Youngers v. Virtus Inv. Partners Inc., No. 15-cv-8262 (S.D.N.Y. July 1, 2016).  Plaintiffs purported to assert claims under Section 10(b) of the Securities Exchange Act of 1934 and Sections 11 and 12(a)(2) of the
Securities Act of 1933, on behalf of investors who purchased shares in certain Virtus mutual funds between May 8, 2010 and December 22, 2014.  Plaintiffs’ allegations concerned statements in the funds’ registration statement that the above-market performance of the funds using a particular investment strategy (the “AlphaSector” strategy) was calculated based on live trading since 2001.  Plaintiffs alleged that the pre-2008 returns were actually generated using only back-testing, as the algorithm was not developed until 2008.  

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On June 21, 2016, Chief Judge Colleen McMahon of the United States District Court for the Southern District of New York dismissed with prejudice a consolidated securities fraud class action filed against Alibaba Group Holding Ltd. (“Alibaba” or the “Company”) and several of its officers and directors.  See Christine Asia Co., Ltd. v. Alibaba Gr. Holding Ltd., No. 15 MDL 2631 (S.D.N.Y. June 21, 2016).  The court ruled that Alibaba’s failure to disclose a meeting with a Chinese regulator and certain administrative guidance from that regulator was not material because the disclosure of such information would not have significantly altered the “total mix” of information available to investors.

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On June 20, 2016, Judge Lorna Schofield of the United States District Court for the Southern District of New York dismissed a securities class action against Seadrill Limited (“Seadrill”), a Bermudan company that owns and operates sea-based oil rigs, and related parties.  See In re Seadrill Ltd. Sec. Litig., No. 14 Civ. 9642 (S.D.N.Y. June 20, 2016).  The Court granted the motion to dismiss because the alleged misrepresentations were either too vague to be actionable or were inactionable statements of opinion or optimism that were not inconsistent with the privately expressed concerns of company executives.

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On June 8, 2016, the United States Court of Appeals for the Ninth Circuit and the United States District Court for the Southern District of New York issued decisions as to separate securities class action lawsuits, dismissing complaints against defendants Peregrine Pharmaceuticals, Inc. and Cellceutrix Corporation, in Fahey v. Peregrine Pharmaceuticals, Inc., et al., No. 14-5582, slip op. (9th Cir. Jun. 8, 2016) and Zagami v. Cellceutrix Corporation, et al., No. 15 Civ. 7194, slip op. (S.D.N.Y. Jun. 8, 2016).  

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On June 9, 2016, the New York Court of Appeals held that New York law does not exempt from discovery attorney-client privileged communications shared by parties that have a common legal interest, unless the communications relate to either pending or anticipated litigation.  Ambac, et al. v. Countrywide Home Loans, Inc., et al., 2016 WL 3188989 (N.Y. Jan. 9, 2016).  

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On May 24, 2016, the United States Court of Appeals for the Sixth Circuit affirmed the District Court’s dismissal of securities fraud claims asserted against a corporation and the corporation’s CEO and CFO.  Doshi v. Gen. Cable Corp., No. 15 Civ. 5621, 2016 BL 164374 (6th Cir. May 24, 2016).  Although a corporate executive’s knowledge typically will be imputed to a corporation, the Court held that an executive’s state of mind, i.e., intent, will not be imputed unless that executive himself or herself makes a public misstatement.    This decision confirms the Sixth Circuit’s decision in In re Omnicare, Inc. Sec. Litig., 769 F.3d 455 (6th Cir. 2014) and makes clear that courts must review “all the allegations holistically” to determine whether a corporation’s scienter has been adequately pleaded.  Plaintiffs had alleged that defendants violated sections 10(b) and 20(a) of the Securities Exchange Act (the “Securities Act”) by recklessly issuing and/or approving materially false public financial statements.   

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On May 20, 2016, Judge Dean Pregerson of the United States District Court for the Central District of California dismissed with prejudice a putative securities class action against Toshiba Corporation.  Stoyas v. Toshiba Corporation, No. CV 15-04194 DDP, 2016 BL 163950 (C.D. Cal May 20, 2016).  Plaintiffs alleged that Toshiba violated Section 10(b) of the U.S. Securities Exchange Act of 1934 (the “Exchange Act”) and Japan’s Financial Instruments & Exchange Act by making accounting misstatements that led to the restatement of six years of financial results and the elimination of approximately one-third of the company’s profits from 2008 to 2014.  The Court rejected these arguments, holding that the American Depository Receipts (“ADRs”) were not subject to Section 10(b) claims, and that comity and a lack of connection to the United States compelled dismissing the Japanese law claims.

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On May 23, 2016,  the United States Court of Appeals for the Second Circuit overturned a jury verdict finding that defendants had violated the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”), and invalidated more than $1.2 billion in civil penalties.  The Court ruled that the Government had failed to establish that defendants, including Bank of America N.A. and Countrywide Home Loans, Inc. (“Countrywide”), had committed fraud because there was no evidence of the requisite intent to defraud at the time the contracts leading to the loan sales at issue were executed. U.S. ex rel. O’Donnell v. Countrywide Home Loans, Inc., — F.3d —, 2016 WL 2956743 (2d Cir. 2016).  The Second Circuit noted that, absent contemporaneous intent to defraud at the time a contract is entered into, the Government’s case amounted to nothing more than intentional breach of contract, which is not a predicate for a FIRREA offense.
 
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On May 20, 2016,  the United States Court of Appeals for the Second Circuit affirmed the dismissal on summary judgment claims against a Hong Kong-based auditor brought under Section 10(b) of the U.S. Securities Exchange Act of 1934 (the “Exchange Act”) and Section 11 the Securities Act of 1933 (the “Securities Act”), holding that plaintiffs had not demonstrated that the auditor had either recklessly issued “clean” audit opinions or did not believe the opinions were true when issued.   In re Puda Coal Securities Litigation, Inc., — F.3d —, 2016 WL 2942415 (2d Cir. 2016).  In so holding, the Court clarified that “audit reports are statements of opinion subject to the Omnicare standard for Section 11 claims,” and held absent evidence of subjective disbelief or actionable omissions of information regarding the basis for the opinion, there could be no claim under Section 11.

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On May 16, 2016, the United States Supreme Court unanimously affirmed the United States Court of Appeals for the Third Circuit, holding that Section 27 of the U.S. Securities Exchange Act of 1934 (the “Exchange Act”) confers exclusive federal jurisdiction over the suits that “arise under” the Exchange Act pursuant to the general federal question statute, 28 U.S.C. § 1331.  Merrill Lynch Pierce Fenner & Smith Inc. v. Manning, 14-1132 (May 16, 2016).  Thus, the Court held that Section 27’s jurisdictional test matches the one formulated by the Court for Section 1331.  Plaintiffs had commenced the suit in New Jersey state court, asserting state-law claims based on allegations that several financial institutions had impermissibly engaged in “naked short sales,” which had devalued stock of Escala Group, Inc., a company in which Manning and the other plaintiffs held stock.

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